Dutch budget cuts spending, new cabinet will do more

THE HAGUE (Reuters) - The caretaker Dutch government proposed cutting 2011 spending by 3.2 billion euros (£2.7 billion) in its budget on Tuesday, but the debate immediately shifted to how much further the next government would have to go to right the state’s finances.

The last government collapsed in February and talks on a new coalition have dragged on for months. That left a caretaker cabinet to deal with the budget, deepening fears about the political risks posed by economic stagnation, a policy vacuum and lingering effects of the credit crisis.

Queen Beatrix told parliament the country’s deficit was unsustainable and its social cohesion was under threat.

But one of the key players in the formation of the new government praised Tuesday’s budget.

“This (budget) is a good first step. Usually outgoing cabinets make the next budget without new policy, but this government does more because they are cutting expenses,” Frans Weekers, the financial spokesman for the Liberals, told Reuters.

The Liberals, the Christian Democrats and the anti-Islamic Freedom Party have been in on-and-off coalition talks for more than a month. There are hopes they could reach a deal by mid-October on a minority Liberal-Christian Democrat cabinet with the Freedom Party’s parliamentary support.

They have been targeting budget cuts of 18 billion euros over their potential four-year term in order to balance the budget by 2015. Finance Minister Jan Kees de Jager -- a Christian Democrat -- said on Tuesday they could potentially balance the budget by that time with just 15.2 billion in cuts.

Weekers said he was not sure if fresh cuts could be made by the new government in 2011 on top of what was announced on Tuesday, and De Jager agreed it would be difficult to implement fresh spending reductions next year.

Among the key spending measures in the 2011 budget are 100 million euros in cuts to integration programmes for immigrants and 120 million in cuts for work retraining programs. In total, the government expects revenue of 235 billion euros and plans to spend 254.7 billion euros.

WHERE TO CUT?

The Queen -- whose arrival at the formal opening of parliament was marred by someone throwing a small candle holder at her carriage -- also emphasised the need for a harmonious society built on respect, tolerance and courtesy. It was a subtle nod to the growing prominence of anti-Islamic sentiment in the country.

Dutch politics have generally shifted to the right, with rising social concern over immigration and integration of its large Moroccan and Turkish communities and a public acknowledgement that the deficit and spending must be cut.

The new cabinet is expected to cut EU-related spending, immigration and a range of social benefits, all part of what analysts said were necessary long-term structural changes following Tuesday’s presentation.

The 2011 budget envisages a deficit of 3.9 percent of gross domestic product, down from 5.8 percent this year. It also sees GDP growth of 1.5 percent during the year, unemployment at 5.5 percent and inflation at 1.5 percent. The figures were leaked to Dutch media last week.

“These numbers make it more easy for the next government to cut spending,” ABN AMRO economist Nico Klene said.

Polls show broad public support for the cuts, although there is a division within the coalition over whether to raise the retirement age to 66 or 67. Women’s and leftist groups have criticised plans to cut childcare subsidies, which they say could force some women out of the workforce.

Bond investors are confident that the Netherlands can maintain its fiscal discipline, keeping its cost of borrowing among the lowest in the euro zone.